NZ: Economy Up Sharply, Despite Quakes

There have been three major disasters in the first three months of this year in the Pacific region: the Japanese quake and tsunami ranks the highest for the human and financial costs, followed by the Christchurch quakes in New Zealand and then the Queensland (and Brisbane) floods and cyclone.

And yet of this trio of pain and agony, the quake in Christchurch in February seems to have had the least impact on the wider economy.

Figures out yesterday (and delayed a fortnight), show the NZ economy actually grew the fastest since late 2009 in the three months ended March, thanks to a jump in manufacturing.

Contrast that with Australia where the floods in Brisbane, in the huge coal fields of central Queensland and then cyclone Yasi punched a hole in the Australian economy, dragging down growth by 1.2% in the first quarter.

Or Japan, where the March 11 quake, tsunami and then the Fukushima nuclear power station crisis plunged the economy into negative growth of 0.9% from the 4th quarter last year.

The Australian floods probably cost more than 30 lives, and $8 billion, which is small by the size of the Australian economy.

But the loss of export sales could double that when all the numbers are in (and we should throw in the impact of cyclones on WA iron ore shipments, as well as delays to exports of other minerals or lost sales).

In Japan the cost is open ended, but it will top $US300 billion, with some 24,000 dead, plus the continuing black hole that Fukushima is going to be for the next decade or more.

In New Zealand the cost is more than 170 dead and around $NZ15 billion, which are both significant figures in a country as small as it is (compared with larger Australia and even bigger Japan).

But in New Zealand, growth rose by 0.8% from the December quarter, when it rose a revised (upwards) 0.5%.

So why did the NZ economy survive devastation caused to Christchurch, the country's second biggest city, while the Australian economy was ripped apart by the floods in Queensland (more the coal mines in the central parts of the state than Brisbane) and Japan where the northeast coast isn't a major industrial conurbation?

Well, the floods in Queensland damaged the heart of Australia's second most import export industry, coal (coking, thermal and other types) and the Japanese disasters of March 11 crunched the country's unique domestic and international supply chains, especially in cars and electronics.

But the Christchurch quake left NZ's export sector basically unchanged, except at the margins around the port of Lyttleton, just south of Christchurch.

NZ manufacturing (which grew by 3.6% in the quarter), timber and especially the vital dairying sectors are scattered across the country, but strongest in the North Island, well away from the quake zone.

It has been devastating to the people of Christchurch and surrounding areas, but NZ economy was shaken, not holed, unlike Australia and Japan.

NZ's statistics office has been struggling with the GDP figures to get them as accurate as possible, especially on the impact of the quake, so more intense surveys of business in the Christchurch and Canterbury area were conducted.

That has helped delay the release of the figures by two weeks. The February 22 quake badly damaged Statistics NZ's Christchurch office, which also contributed to the two week delay in the release.

So the 0.8% growth rate was double market estimates and well above the official Treasury forecast of 0.3%.

Statistics NZ made significant revisions to previous quarters: revising up the December quarter to 0.5% growth from a previous 0.2%, and revising down the 0.2% contraction in the September quarter to a 0.1%.

All in all the NZ economy has been doing much better than expected for the past nine months and that is reflected in government tax receipts which were higher than forecast in the 11 months to May, with GST revenues being higher than forecast (and despite the increase last October).

The news brought an immediate surge in the value of the NZ dollar to a new high of 85.01 USc before it eased to close around 84.50 as investors punted that interest rates would not remain at the 2.50% low much longer and could rise later this year.

The data showed stronger manufacturing and wholesale trade growth more than offset falls in the construction industry.

Construction will start emerging as a major area of growth (and perhaps inflationary pressures) from this quarter onwards as the clean up in Christchurch evolves to rebuilding.

Domestic consumption, which makes up around 60% of the NZ economy, rose 0.4% the eighth consecutive quarter of growth.

The strong trade position added to growth, boosted by exports of dairy products while imports of passenger cars fell.

Inventories were run down, following the largest build-up in the previous quarter since the series began in June 1987.

Annual GDP for the year to March rose 1.5% to $NZ135.8 billion, the biggest the New Zealand economy has been in a March year since 2008.

Statistics NZ said in a statement:

"In the March 2011 quarter, the increase in economic activity was due to a 0.5 percent rise in the services industries, and a 1.4 percent increase in the goods-producing industries. Activity in the primary industries fell 0.6 percent, partly offsetting these increases.

The main movements by industry this quarter were:

Manufacturing (up 3.6 percent) - machinery and equipment manufacturing was the largest contributor to the rise this quarter.
Finance, insurance, and business services (up 0.5 percent) - driven by a 1.0 percent increase in real estate and business services.
Wholesale trade (up 1.5 percent) - the sixth consecutive quarter of growth.
Government administration and defence (up 2.1 percent) - the largest increase since a 2.3 percent increase in the December 2008 quarter.
Construction (down 4.3 percent) - follows a 0.5 percent rise in the December 2010 quarter, and is the largest fall since a 5.5 percent fall in the December 2008 quarter.
Economic activity was up 0.8 percent in the March 2011 quarter.
The largest increase was in manufacturing (up 3.6 percent).
Real estate and business services (up 1.0 percent) and wholesale trade (up 1.5 percent) also increased.
For the year ended March 2011 gross domestic product increased 1.5 percent.
The expenditure measure of GDP was up 0.6 percent in the March 2011 quarter.
Household consumption expenditure was up 0.4 percent.
General government expenditure was up 1.2 percent.
For the year ended March 2011 expenditure on GDP increased 1.8 percent.

"The strong growth in the latest quarter despite the 22 February earthquake, was mainly due to manufacturing," national accounts manager Rachael Milicich said in a statement.

"While some businesses were adversely affected, the vast majority were able to continue operating, and the earthquake resulted in some activity that would not normally have taken place."

For the many Australian companies operating in NZ, the growth figures and other positive data is good news.

The banks, retailers like Woolies, Harvey Norman and Bunnings, media groups like Fairfax and APN, financial services groups such as AMP, airlines and other companies, now face a growing economy.

Yes consumers in NZ are cautious, like in Australia, and have been made more so by the impact on confidence of the quake in February.

But they can see that the economy has survived, and while the $NZ 15 billion cost will hurt (despite the reinsurance payments) and strain resources for several years to come; it hasn't broken the growth cycle like the Queensland floods did in Australia.

That's a message we in Australia continue to struggle with, notwithstanding the profit downgrade by David Jones on Wednesday night, which saw the shares slump 15% at one stage yesterday, or other downgrades.